Sugar & Bioenergy Ben Pearcy Managing Director, Sugar & Bioenergy and Chief Development Officer, Bunge Limited September 23, 2010 Bunge Investor Day
Profile 1
We are building the business through a combination of greenfield investment and acquisition Acquired Moema: 5 mills with 13.7 mmt of capacity Expands Bunge total capacity to 20 mmt Acquired 60% stake in Monteverde mill Acquired Tate & Lyle sugar trading & merchandizing business Started sugar trading & merchandising operation Acquired Santa Juliana mill (1st asset) Started development of Pedro Afonso mill Top 3 Brazil Cane Miller Top 3 Global Sugar Merchant 2005 2006 2007 2008 2009 2010 2
Bunge has established a strong production base in Brazil with modern, flexible and efficient mills Original Bunge Mills MT TO DF BA Pedro Santa Monte Afonso (TO) Juliana (MG) Verde (MS) MS MG ES Vitória Additional Mills from Moema Group Ribeirão Preto RJ PR Santos Paranaguá Moema (SP) Frutal (MG) Ouroeste (SP) Moema mills Bunge mills (existing or under construction) Itapagipe (MG) Guariroba (SP) Note: Map not drawn to scale. 3
Bunge has the capability to double capacity using only existing mills Expected Evolution of Bunge Sugarcane Milling Capacity Bunge Potential Combined Moema Million metric tons sugarcane. Includes forecast capacity at Bunge s Sta. Juliana, Monteverde and Pedro Afonso mills, as well as Moema s share of capacity. 4
Bunge has investments in two U.S. corn ethanol plants, with strong distribution networks Bunge produces 480m liters of ethanol in the US Ethanol Plant Throughput facility 5
Markets 6
Sugarcane milling generates not just sugar, but three principal outputs: sugar, ethanol, and power Sugarcane Sugar Evaporation decks Raw sugar storage Refining Final product packaging and storage Product mix decision Ethanol Receiving and washing Crusher Molasses Fermentation decks Distillation towers Storage ethanol Bagasse Boiler Mill usage To the grid 7
As a result, Brazil has become the dominant global l sugarcane producer Sugaracane planted area Harvest 09/10* ( 000 ha) Asia Africa South America US & Central America Source: FAPRI 2010 Agronomical Outlook *Areas projected for this harvest 8
Sugarcane industry has solid fundamental demand and potentially significant longer term upside as a renewable energy source Today Potential ti Market: Brazilian power (cogeneration) Strong demand and attractive pricing Market: Industrial biotech Biomaterials (e.g. PET ) Significant new demand for Brazilian cane Timeframe: Beyond 2012 Market: Brazilian ethanol (flex-fuel) Very strong mid-term growth trends (8%+ pa) Market: International Sugar Strong underlying growth trends Brazil the low-cost supplier Expanding global trade Hydrocarbon economy Market: Advanced fuels Biodiesel (EU), kerosene, butanol Significant new demand for Brazilian cane Timeframe: Beyond 2012 Market: International ethanol E.g., US RFS (Renewable Fuel Standard) Significant new demand for Brazilian ethanol Timeframe: Beyond 2012 Carbohydrate economy 9
Brazil is the leading exporter of sugar and is expected to increase its share as global l demand d grows Brazil Sugar Exports as a Percentage of Global Trade alue Million tons, raw va Brazil produces about 20% of world s sugar, but accounts for close to 50% of exports today. This is forecast to increase to 60% by 2020. Source: LMC International 10
Sugarcane has favourable characteristics as a renewable energy source Energetic Return (Input Output) Ethanol Production (10x liters/ ha) 12 10 8 6 4 2 0 3,1 1.2 1.3 1.9 10 8.3 Wheat Corn Beet Sugarcane Regular Case Scenario Best Case Scenario 900 800 700 600 500 400 300 200 100 0 772 535 321 241 112 Barley Wheat Corn Beet Sugarcane Greenhouse Gas Balance on Life Cycle Basis Historical Productivity Increase 11
Ethanol markets are largely domestic today; however, growth in exports could become a future opportunity Sweden 5% Mexico (Undefined %) Canada 5% E.U. 10% USA (1) 35 billion gallons by 2017 Costa Rica 5% Columbia 10% Bolivia 25% Brazil 25% 23% Netherlands U.K. 2% 5% France 5% India 5% Thailand 10% Taiwan 20% Phillipines 5% China 5% Japan 3% In force Planned Argentina 5% Australia 10% Countries representing approximately 80% of global petroleum demand are introducing blending targets 12
The Brazilian flex fuel fleet has gained critical mass faster than expected Brazilian vehicle fleet projections by fuel type (2003-2020) FFV / Total Fleet Source : Bunge 13
Based on today s commercial options, ethanol from sugarcane is well positioned to fulfil US RFS2 advanced fuel mandate US Renewable Fuels Standards 2 (Billions of Gallons) Other advanced Brazil ethanol mainly 5B cum by 2015, 15B cumulative by 2022 Cellulosic Biofuels Aggressive volumes but no substitute Renewable Diesel Limited upside Conventional Biofuels Corn ethanol mainly, but capped 14
Co generation is expected to become an important source of revenues for millers Revenue mix of average sugar mill Electricity Ethanol Sugar Electricity Ethanol Sugar Mills provide electricity during dry season when reservoirs from hydropower plants are low Energy is sold directly to large customers or at auctions to power companies Provides cash flow stability EBITDA margins in 80-90% range Over time could provide between 15-20% revenue contribution High initial capital cost to install generation equipment and transmission lines to grid Milling 4 mmt of cane can produce electricity equivalent to consumption of a Brazilian city of 300,000 inhabitants Note: Consumption figures assumes Brazlian parameters and 200 day crush season Source: UNICA 15
Industry experts expect a strong combined pull for Brazilian sugarcane in the next decade UNICA (Apr 2010) Forecast 2009/10 2015/16 2020/21 Sugarcane production (million t) 598 829 1,038 Sugar (million t) 33 41 45 Domestic Market and Stocks 9 11 12 Surplus Export 24 30 33 Ethanol (billion l) 26 47 65 Domestic Market and Stocks 22 35 50 Surplus Export 3 12 16 Cogeneration (MW avg) 1,800 11,500 14,400 16
Accelerating interest in cane from a wide range of industries and players Access to capital Commodity risk management Electricity Biotechnology Chemical marketing Sugar & Bioenergy Farming Traceability Agronomics Logistics Fuels distribution 17
Key Success Factors 18
Agricultural operations represent the largest part of a Brazilian millers costs Standard cost of sugar cane mill in Brazil Source: Datagro 19
Sourcing decision: own cane versus third party Third Party Cane Pros Consecana pricing provides hedge against lower prices Lower capital employed in agriculture Lower operational complexity Cons Risk of raw material shortage Limits upside at times of high prices Constrains forward hedging as supply cost not known Growers prefer to deliver at peak TRS slot (July Sep) Own Cane Pros Guaranteed supply Allows forward hedge at time of high prices Yield improvement and mechanization Optimizes mill utilization by integrated planning Cons Higher capital employed Agricultural operational risk Higher exposure to low product prices In 2011, Bunge expects to source about 35% third party cane and 65% own cane 20
In Brazil, scale is a key source of advantage at the cluster and industry level Benefits of Scale in Clusters Lower Cane cost Optimization of cane sourcing across multiple mills Fixed costs savings Main mill has shared service center Lower capital costs Shared sugar and ethanol storage and transmission lines Benefits of Scale in industry Logistics network efficiency Road/rail transhipment Pipelines Port facilities Marketing leverage as a reliable supplier Input purchases Fertilizer Equipment Technology alliances 21
Product marketing and risk management Sugar Marketing VHP* raw sugar for export typically sold FOB to trade houses under frame contracts Crystal sugar sold to domestic food manufacturers under frame contracts Risk Management Future sales can be hedged via NY#11 market Brazil a delivery point for NY#11 Trade houses also provide forward pricing tools Ethanol sold ex mill to fuel distributors on monthly basis under frame contracts Ethanol Exports sold FOB to trade houses on opportunistic basis Mostly spot pricing linked to local ESALQ index Emerging futures market in Sao Paulo Storage used to capture intercrop premiums Electricity Electricity sold under very longterm contracts Government auctions for new energy with 10 year timeframe Surplus sold spot Long term contracts at inflation adjusted price in R$ Spot market very volatile 22
Sugar demand is relatively stable; swings in supply typically drive price Maximum and Minimum Raw Sugar Imports (05/06 09/10) Top of line shows maximum annual imports Bottom of line shows minimum annual imports Source: LMC: Bunge analysis 23
Domestic ethanol trades basis gasoline prices at the pump in Brazil The Brazilian government has held gasoline prices stable in local currency since September 2005 despite volatility in global prices Ethanol has 70% of the energy content of gasoline Ethanol must be priced below 70% to attract demand Actual ethanol price reflects balance of capacity and demand Growing flex-fuel demand base likely to move ethanol closer to 70% level over time Gasoline and Hydrous Ethanol Price evolution: R$ per liter at pump in SP State 2.60 2.40 2.20 R$ $/Liter 2.00 1.80 1.60 1.40 1.20 1.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 Gasoline limit of 70% Ethanol 24
Sugar and ethanol are correlated but decouple frequently creating opportunities for flexible millers Sugar and ethanol prices (2003 June 2010) in US$/Lb equivalents 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 30 Dec 03 30 Mar 04 30 Jun 04 30 Sep 04 30 Dec 04 30 Mar 05 30 Jun 05 30 Sep 05 30 Dec 05 30 Mar 06 30 Jun 06 30 Sep 06 30 Dec 06 30 Mar 07 30 Jun 07 30 Sep 07 30 Dec 07 30 Mar 08 30 Jun 08 30 Sep 08 30 Dec 08 30 Mar 09 30 Jun 09 30 Sep 09 30 Dec 09 30 Mar 10 30 Jun 10 150's FOB (crystal without taxes) NY#11 Hydrous Anhydrous Source: Esalq, Ice and Bunge 25
Not only do Bunge s mills source significant own cane, they are also flexible, mechanized and have significant co gen 8 Mills in 4 states with high growth potential 3 Mills in Sao Paulo State: Moema, Guariroba, Ouroeste 3 Mills in Minas Gerais: Santa Juliana, Frutal, Itapagipe Other: Monteverde in Mato Grosso de Sul; Pedro Afonso in Tocantins 2011 Capacity: 21.8M mtpa; Crush: 19M mtpa Expansion potential: ~40M mtpa Own cane: 65% - one of the highest in the industry Secure, efficient Total cane managed: ~200,000 000 ha cane access Mechanized harvest: ~90% Flexible product output 2011 sugar production ~1M mtpa; Ethanol production ~1M m3 2011 anticipated output: ~40% sugar; ~60% ethanol Swing capacity: 10% of capacity Co-gen capacity: ~60MW; Co-gen sales: ~360,000 MWh 26
Strategy 27
Strategic Objectives Build top 3 position in Brazilian cane milling industry Brazilian cane will be the low cost winner Build top 3 position in global sugar and ethanol trading & merchandising Develop integrated global value chain supported by selected upstream and downstream investments t outside Brazil Leverage Bunge s global network Build global relationships with technology providers and fuel/chemical industry 28
Leading gplayers will be global Consumption growth Fastest production growth Sugar flows Ethanol flows Business model of leading sugar player Global footprint Low cost production assets Meaningful share of global l trade Integrated value chain Robust risk management 29
Conclusion This is an industry with extremely strong fundamentals in both growth and upside potential Brazil is the clear economic winner in cane production Value chain is complex and sophisticated, risk management is essential plays to Bunge s core skills and allows us to build competitive advantage Agriculture is a key value driver di and requires new capabilities, which we are developing Flex fuel andtheglobaldrive drive forrenewablerenewable fuels wasaninflexionan point in the Brazilian cane industry Technology may cause additional inflexion points and players need to be positioned to adapt and leverage new opportunities 30
Thank you. 31